Subgrouping a large mesh
As it happens, I've been working with subgroups in terrain myself, probably for a different game and game engine than you are. Here's how I would proceed. Broadly speaking, my custom is to analyze the terrain object I am working with and to create subgroups from sets of vertices which share common properties. Examples of such properties include what the selected vertices represent. For example, all roads in a section might be assigned to the same subgroup of vertices. All watercourses (rivers, streams, &amp;c by whatever name known) might be assigned to a different subgroup. All bodies of water, from puddles, through ponds and lakes to seas and oceans, might be assigned to a third. I also use density of vertices (when projected to the base plane) as criteria, so that a mountain might be assigned to its own subgroup (or sometimes more than one, if required by the density of vertices.

Just doing the basic math, you have 263,169 verts, and the maximum limit per section is 65,536 verts, you will need at least five subgroups (263/65 is greater than 4). Unless there are other considerations in the game engine that would force otherwise, I'd create groups which share common characteristics. For example, relatively smooth areas have few verts, and mountains have many. This image



shows the subgroups I would define in the case of your terrain object. I might be inclined to stretch the number of subgroups to 6 of more, if I need to separate out roads easily, and if the mountain in the upper right has too many vertices. In the case of the mountain, if I had to separate that into two subgroups, I'd cut into a bottom and a top subgroup, as indicated by the dashed line.

As top exactly how I would define the vertices would depend upon the details of the game engine. I would certainly define vertex groups to make it easy to select (or deselect) one or more of the subgroups at a time, but I suspect that the subgroups would need to be made into separate objects which are exported to the game object as part of a single scene. This will depend upon the details of implementation of the import process for the game engine.

Disclaimer: upon seeing your actual mesh I might make different choices for the subgroups I'd use.